Vladimir Putin’s introductory remarks:

Ladies and gentlemen,

We have gathered here to summarise certain aspects of our preliminary work on the draft of the federal budget, Russia’s basic fiscal law for 2012 and the next two years.

I remind you that, on the basis of the conditions of our scenario, we have set the critical parameters of state expenditures on the economy, infrastructure, research, education, industry, agriculture, social development, defence and security. Today, we again need to arrange our priorities and make our final account of debatable points, making sure to dot our i’s and cross our t’s. I would like to begin, however, with the general logic of budget preparations.

The first thing I'd like to call your attention to – though this is nothing new – is the necessity for balance between budget revenues and expenditures. We all see what happens to countries that violate this principle, even if those countries possess developed market economies. We should by no means follow their example.

I would like to remind you that we initially proceeded for this year from a budget deficit of 3.6% of the gross domestic product. Now, by contrast, we have a 1.8% surplus after the first five months of the year. However, we know too well that expenditures inevitably grow in the second half of the year, and we will likely finish the year with a deficit, though it will be smaller than we initially expected. I think it will consist between 1.5% and 1%, or possibly even less. Such a small and controllable deficit certainly does not threaten macroeconomic stability, and encourages investors and other participants in economic activities.

I feel it is our duty to do everything we can to put an end to the budget deficit within the planned period. This goal requires, above all, strict budget discipline, with all expenditures weighed and double-checked. We should proceed from a foundation of efficiency and thrift.

Secondly: we determined from the very beginning to draft the budget for three years as the first post-crisis budget – a development budget. This means that government grants must provide a firm basis for dynamic economic development and future public revenues. That is why we will focus allocations on sectors promising multiple returns. By this I mean, above all, a comprehensive socio-economic effect, which we will not achieve unless we make a point of promoting infrastructure programmes and innovation. Of course, we must put special emphasis on the defence industrial complex, the agro-industrial complex, science, education and healthcare.

You probably noted, at the recent meeting in Rostov, that we said the budget already reflects our decision to increase funding for the state agro-industrial programme. We have decided to increase it by 12 billion [roubles] (incidentally, we consulted the Finance Ministry prior to this meeting). Defence and other basic expenditures are also growing, and we will discuss them once again today.

We must determine the sources of lost revenues in connection with the decision to reduce social costs. It is a critical matter that demands discussion. Speaking of which, participants at the Rostov meeting called for reductions from 30% to 20% for consumer cooperatives, an essential area of agriculture. I ask the Finance Ministry to estimate the feasibility of such reduction, and the resultant shortfall in revenues. Cooperatives make up only a small economic sector in this country. Please calculate the approximate impact of this cut on the budget, then report back.

Finally, I want to reiterate that the state will certainly fulfil all its social pledges – with regard to pensioning, support of veterans, and plans concerning healthcare, demographic development, education and employment. It is a critical part of our work. We must also set aside necessary funds to increase military and police salaries, and solve housing problems in the Defence Ministry and the Ministry of Internal Affairs.

Let’s get to work.